What Is the Gig Economy? Definition and Considerations

The gig economy is becoming an increasingly important force in the national and global labor market. The 60 million Americans in the gig category involve independent workers and freelancers performing temporary, part-time, and contract work rather than the full-time work done by permanent employees.

This type of work arrangement suits many different organizations and the temporary workers offering their specialized services. Employers can realize greater flexibility and savings in their hiring practices, while gig workers can enjoy the freedom of this arrangement by working when and where they want to, often for different clients.

However, gig work does have some drawbacks and challenges that all participants should be aware of before plunging into the gig economy. We explain what you should know about the gig economy.

• What is the gig economy?
• Popular types of gig economy jobs
• How businesses use gig work
• Advantages of using gig workers
• Challenges with using gig workers
• Why workers choose gig work
• Benefits of gig work
• Downsides of the gig economy
• How to get started with gig work
• Become part of the gig economy

What is the gig economy?

The IRS defines the gig economy—also known as the sharing economy or access economy—as an “activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website.”

The work can be short-term and task-based or may involve long-term, ongoing relationships between the gig worker and their clients. Some well-known gig economy apps and online platforms include ride-hailing apps like Uber or Lyft, food delivery apps like DoorDash or Instacart, home-sharing apps like Airbnb and Vrbo, miscellaneous job and product connections like Taskrabbit and Etsy, and freelance work hiring services platforms like Upwork and Fiverr.

Technology and digital platforms have played a pivotal role in facilitating these interactions, making it easier for individuals to find work opportunities tailored to their skills and interests.

The importance and necessity of independent talent and gig workers was driven home when 47.8 million workers left their jobs in 2021, spurred by the difficult conditions of the COVID-19 pandemic. This left many employers looking for workers and many independent contractors looking for non-traditional job arrangements.

Platforms like Upwork bridge the gap between employers and independent talent—and it pays off for both parties.

One projection indicates that gig work may more than double its market size from 2018 and grow to $455 billion in 2023. And this number may continue to grow, as will opportunities for gig workers looking for a flexible career, extra income, or additional experience.

Popular types of gig economy jobs

The McKinsey Global Institute points out that independent workers fall into four groups:

• Free agents who choose independent work and get their primary income from it
• Casual earners who choose to do supplemental independent work
• Reluctants who do independent work but would prefer full-time jobs
• Financially strapped workers who do supplemental independent work out of necessity

The diversity in these categories indicates a wide range of reasons people turn to freelance work.

The kind of work that these independent workers pursue generally covers four sectors:

• Asset-sharing services (such as home sharing and car sharing)
• Transportation services (such as ride-hailing, restaurant delivery, and goods delivery)
• Professional services (including freelance writing, design, coding, and more)
• Handmade goods, household, and miscellaneous services (such as handmade crafts, tutoring, pet services, event management, and more)

While a historical perspective might have pegged temporary jobs as minimum wage, compensation for today’s gig economy jobs can be very attractive. Among the many types of freelance jobs available, some of the highest paying include:

• Public relations management
• Business consultancy
• Media buying
• Photography

Additionally, with the rapid growth of technology and the internet, there are also increasing opportunities in areas such as social media management, virtual assistance, and bookkeeping.

Some freelance jobs, contract work, and side hustles require a specific geographic presence, such as food delivery services and ride-sharing jobs. On the other hand, many gig work tasks—such as web design, copywriting, and computer coding—allow workers freedom to work wherever they’re located.

For those who enjoy traveling, this second type of remote gig work might be perfect. Digital nomads turn the world into their office by working remotely from anywhere they wish in the country or worldwide.

How businesses use gig work

Businesses and organizations often use independent contractors and self-employed workers to fill roles because they can’t find a full-time equivalent, they don’t have budgets for permanent employees, or they only need someone for short-term tasks. And, in many cases, they want to draw from the bountiful pool of talent available on sites such as Upwork.

The rise in remote work culture, coupled with the ability to collaborate online effectively, has further boosted the demand for gig workers. It’s now easier than ever for companies to manage and coordinate with independent contractors and freelancers from different parts of the world.

Whether they’re looking for freelance graphic designers, software developers, or information technology (IT) specialists, many companies are deciding to hire gig workers. The hiring process typically involves:

1. Setting a project outline
2. Defining a budget
3. Establishing criteria for freelance selection (like level of expertise, experience, and hourly pay rates)
4. Creating an effective job description
5. Assessing possible candidates
6. Creating and signing a contract that outlines expectations, deliverables, and timelines
7. Getting the freelance worker started on a job with a specific timeframe and budget

Advantages of using gig workers

Businesses can realize many benefits by incorporating independent professionals into their workflows.

• Flexibility. They can enjoy great flexibility by hiring from a vast range of talent and finding  professionals who can fill niche roles.
• Fresh perspectives. Using a diversified team with different backgrounds and expertise can provide fresh perspectives, potentially leading to innovative solutions and ideas.
• Ability to scale. Organizations can easily scale their businesses up or down based on demand, only paying for the work needed to be done.
• Reduced overhead costs. They can reduce overhead costs since they don’t have to pay for health care insurance costs and other employee benefits, and they often don’t need office space or equipment for freelancers.
• No long-term commitment. If a work relationship doesn’t pan out, the company doesn’t need to worry about the headaches and costs of terminating a worker. They just don’t renew the contract.

In the debate over what’s better, independent talent or full-time employees, employers don’t have to choose one over the other. Many companies are exploring the benefits of hybrid workforces with independent professionals and traditional employees working together. In this model, regular staff can handle the work they love and are best suited to, while the gig workers can take care of other jobs requiring specialized expertise not found in-house.

Challenges with using gig workers

While companies can realize many benefits from using gig workers, there are also potential drawbacks.

• Quality control issues. A dispersed, transient workforce may make quality control a challenge. To help address this, consider using digital project management tools, conducting virtual audits, and building in process self-checks.  
• Lack of familiarity. Freelance workers might not be as familiar with a company’s work processes and culture. Appropriate onboarding can help.
• Misclassification. Business owners need to ensure they properly classify gig workers as independent contractors as opposed to regular employees so there are no legal or tax considerations. For example, if they improperly classify a worker as an independent contractor when they should be considered an employee, the business might be required to offer the worker benefits not specified in the agreed contract.
• Inconsistent availability. Since gig workers typically manage multiple projects or assignments from various clients, there might be times when their availability doesn’t align with a company’s immediate needs. To mitigate this, maintain open communication about schedules and set clear expectations upfront about project timelines.

With a gig workforce, managers may have to develop different strategies and communication methods to use these workers effectively compared to dealing with traditional employees. For example, they might need to develop a set of clear expectations for a remote team and schedule regular virtual check-ins.

Why workers choose gig work

People might choose to be self-employed and participate in the freelance economy for many reasons.

For example, they might have a regular job but then start a side hustle to earn extra money and perhaps see if it can become their primary source of income. They might desire the flexibility to work their own hours, work for different clients, and work from whatever location they want to live. Some simply want the opportunity to be their own boss.

The draw of gig work for many people is to achieve a work-life balance with less stress and burnout, fewer commutes, greater productivity, and an enhanced sense of well-being.

Benefits of gig work

Some workers use gig work as a necessary supplement to their regular incomes. Others use it for discretionary expenses, such as travel. An online job platform like Upwork can help them find an outlet for highly specialized skills, bringing them increased compensation for their hard-won expertise.

Gig work also gives professionals a chance to plug into a wider network of fellow professionals, helping find new work and develop timely skills.

For example, a freelance photographer might network through a professional association with seminars, courses, and social events—all designed to make them more employable and use their industry’s best practices. They could also tap into the connections available through the Upwork Community, with its many relevant forum topics.

The control that gig workers have over their schedules and the ability they have to choose what tasks they take on can lead them to be more satisfied with their work. Plus, the act of being an independent worker can enable people to become more entrepreneurial by finding and servicing clients, setting rates, keeping budgets, sticking to work schedules, developing supportive networks, and achieving self-esteem and self-actualization.

Downsides of the gig economy

The gig economy does pose some challenges for independent workers. A gig worker might struggle with the lack of job security or income stability, as opportunities and assignments may vary from week to week. In addition, with the lack of benefits provided by an employer, they are responsible for their own health insurance, retirement plans, taxes, and career development.

Working from home requires discipline and self-motivation. These professionals need to make sure they use their time well and maintain productivity. Some people find working on their own lonely and miss the camaraderie of a regular office; this can be addressed with team-building and networking activities.

Companies might find some contract workers less loyal to the job and more likely to leave for other opportunities offering greater stability or preferred job features or compensation. One way to mitigate this is to place valued gig workers on a hiring path for full-time employment.

With Upwork, companies can post a contract-to-hire job, do a trial with the prospective hire, and then, if both sides agree, the worker’s Upwork contract can be converted into a full-time job position.

That said, repeat business and referrals are cornerstones for success for most freelance workers. High-performing gig workers do what’s necessary to keep clients happy and to prove their loyalty to them. According to a Harvard Business Review (HBR) survey, 81% of U.S. freelancers achieved loyalty with more than three clients.

How to get started with gig work

Finding opportunities as a gig economy worker or employer starts with identifying the type of work you want to do and are qualified for or the kind of work you need done. Then find the right platform to make connections.

1. Define your value proposition

If you’re looking to become a freelancer and land your first job, start by defining your value proposition—what unique qualities you bring to the table for prospective clients as far as skills, experience, and past achievements.

2. Create a portfolio

Then, put together a portfolio, which might include work samples, client testimonials, and case studies. You should also set your hourly rate and stick to it. Don’t underestimate the value of your skills. If you offer quality services, there are clients willing to pay reasonable rates.

3. Find the right platform

The search for the kind of work you want to do is expedited by using platforms like Upwork, making it easy to search for and find the kind of hourly or fixed-price work you’re seeking. Simply look for a job, submit a proposal, land a contract, complete the project, and then get paid securely.

Clients looking for the right freelance help can post jobs in the Talent Marketplace^™. Hundreds of thousands of large, medium, and small businesses turn to the resources of Upwork to get the talent they need. Businesses can also browse and buy ready-made projects from the Project Catalog^™.

Become part of the gig economy

The gig economy can be a win-win proposition for both companies and independent contractors. It provides businesses with a large supply of talented professionals, helping them to get the best work done and often save money along the way.

If you’re an independent contractor, the gig economy can provide the flexibility to have the kind of work-life balance you desire, with a wide range of potential clients, different kinds of jobs, and the ability to set your own schedules and live where you prefer.

When you’re looking for work, Upwork lets you create a free profile and gives you access to the best jobs on the market. When you love what you do and find the right clients, you can make a career out of following your passions.

If you’re looking to meet your business needs, turn to the resources of Upwork to hire temporary and contract workers who can help your organization.